Written Commentary
SUGAR
Sugar prices have seen an abrupt change in fortune during the past 2 weeks as they have regained more than 11% in value since posting a 3 1/2 week low in late October. If key outside market can provide consistent strength, sugar can see a sizable upside extension to this recovery move. For the week, March sugar finished with a gain of 93 ticks (up 5.0%) for a second sizable weekly gain in a row. A rebound in the Brazilian currency provided the sugar market with carryover support as that eases pressure on Brazil’s Center-South mills to produce sugar for the global export marketplace. In addition, a week-ending rally in crude oil and RBOB gasoline prices strengthened ethanol demand prospects in Brazil and India. The prospect of additional price gains for energy markets as China relaxes their “Zero Covid” policy helped the sugar market to maintain upside momentum going into the weekend. If crude oil and RBOB gasoline extend their recovery moves up beyond the July and August price highs, that may be enough for Brazil’s Center-South mills to shift some of their crushing away from sugar production and towards ethanol production.
COCOA
Cocoa may be setting up for early downside follow-through this week as its November rally ran out of steam. With signs of improving demand and bullish near-term supply developments, however, cocoa prices should remain well supported on a near-term pullback. For the week, March cocoa with a gain of 88 points (up 3.6%) for a second sizable weekly gain in a row. A “double-digit” year-over-year reading for German CPI provided more evidence of high European inflation levels that are likely to diminish near-term cocoa demand in the region, and may have been a key factor for triggering a wave of profit-taking and end-of-week long liquidation. Sizable rallies in the Eurocurrency and British Pound as well as continued strength in Euro zone and US equity markets provided carryover support that helped to keep further losses for cocoa prices in check. Ivory Coast’s Coffee and Cocoa Board has threatened to block the purchase of cocoa from their farmers starting on November 20th if buyers do not agree to both their current nation premium and their Living Income Differential. Following a dockworker strike at their port of San Pedro, this situation could lead to further disruption in the follow of Ivory Coast cocoa beans and products onto the global market if there is no quick resolution. A negative daily reversal and an outside-day down normally results in early downside follow-through, and that could lead to further profit-taking and long liquidation given cocoa’s sizable gains this month.
COFFEE
The sweeping reversal from Thursday is a positive technical development, but the market is already testing this low this morning. It will be important to hold support at 162.90, or there could be further weakness down to 158.80. Although the market will continue to deal with near-term demand concerns, coffee is in a good position to extend a recovery move. For the week, March coffee finished with a loss of 3.55 cents (down 2.1%) which was a sixth negative weekly result over the past 7 weeks. Production issues in Brazil and Colombia from the current La Nina weather event has provided the market with underlying support, as those 2 nations account for more than half of global Arabica output.
COTTON
December cotton closed higher on Friday as a sharply lower dollar and optimism about Chinese demand lent support. The dollar index was sharply lower for the second day in a row and closing 4% lower for the week. China relaxed some of its Covid restrictions, which raised hopes that the Chinese cotton demand would strengthen. The stock market was also higher, which boosts demand expectations. There were also concerns that rains from Hurricane (now Tropical Storm) Nicole would damage cotton crops in Georgia. As of November 6, 51% of Georgia’s crop had been harvested. This suggests there is still a large amount still in the fields and vulnerable to damage from heavy rains.
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